10 Emerging

U.S. Industrial Markets

to Watch in 2017

In today’s e-commerce-driven “need-it-now” environment, a primary purpose of warehousing is to reduce delivery lead time—the time between a customer placing an order to receiving it on their doorstep—while keeping overall supply chain costs down.

This balancing act between cost and proximity to consumers and distribution hubs is driving many retailers and wholesalers to seek out modern facilities in secondary markets. In particular, this shift is rapidly improving fundamentals near inland ports, seaports and large population centers.

While core industrial markets in New Jersey/Pennsylvania, the Inland Empire, Atlanta, Chicago, Houston and Dallas will continue to thrive, we believe these 10 emerging U.S. industrial markets are positioned to experience the most robust increases in demand from both occupiers and owners.

Each of these markets is unique, but they share advantages such as nearby logistics hubs, attractive rental rates, land available for development, large nearby populations, pro-business atmospheres and skilled workforces.

In 2017, it just might pay to get to know these 10 rising stars of the U.S. industrial market.

Columbus

At 6.4 million square feet, 2016 was a record-breaking year for Columbus in terms of new supply from construction.

“Located within an overnight truck drive of 47% of the U.S. population, Columbus is poised to be one of the most exciting industrial markets in the country. A Midwest leader in population, jobs and GDP growth, the Central Ohio region has more than 4,100 logistics and distribution operations that employ more than 80,000 people. Because of its strategic location, Columbus is crossed by eight major interstate highways, allows for double-stacked intermodal trains from the East Coast and is home to the most active foreign trade zone in the nation.”— James Garrett, Executive Vice President & Managing Director | Columbus

Key Strengths:

The crossroads of Interstate 70 and Interstate 71, in conjunction with the availability of large tracts of developable land, make Columbus attractive to logistics providers and retailers. The e-commerce sector and third-party logistics providers are the primary demand generators, particularly in the West, East and Southeast submarkets. Amazon recently completed two fulfillment centers totaling 1.9 million square feet in two of these key submarkets.

Logistics Driver:

The Rickenbacker Inland Port serves as a hub for importing and exporting freight via air and rail, positioning Columbus to take advantage of future increases in shipping to East Coast ports.

Vacancy:

After peaking at 15% in mid-2010, the Columbus warehouse/distribution sector has experienced robust activity and the vacancy rate plummeted to 5.4% at the end of 2016.

Absorption:

Robust demand skyrocketed overall net absorption in 2016 to 8.7 million square feet—by far the most absorption on record in Columbus. This amount of absorption is also nearing numbers posted only in core industrial markets throughout the country.

Development:

Since 2010, Columbus has seen a gain in occupancy of 26 million square feet and only 19 million square feet of new inventory. This combination of factors has contributed to tightening market conditions and the surge in construction activity over the past three years.

Asking Rents:

Despite robust industrial fundamentals, asking rental rates are stable in Columbus and finished 2016 at $3.36 per square foot per year NNN. These economic rental rates will be a driving force for activity in the coming year.

10,000-24,999 SF

25,000-49,999 SF

50,000-74,999 SF

75,000-99,999 SF

100,000-249,999 SF

9.5%

5.2%

$3.60

$3.57

250,000-499,999 SF

9.7%

8.8%

$3.11

$3.18

500,000 SF +

6.0%

6.3%

$3.44

$3.11

DENVER

2016 saw the most product under construction in more than a decade at 3.6 million square feet.

“Denver is thriving thanks to an abundance of high-paying jobs that have attracted more than 150,000 people to the area between 2010 and 2015. Denver supports the largest geographic distribution market in the country servicing an eight-state region. Besides the economic diversity of the metro Denver area, the state of Colorado is well-known for being a recreational paradise for outdoor enthusiasts. This is attracting a young, burgeoning workforce looking for employment opportunities with work-life balance.”—Brad Calbert, President | Denver

Key Strengths:

E-Commerce is a driving factor in Denver's industrial sector, as companies add distribution centers in the Rocky Mountain hub. In particular, Walmart and Amazon have taken significant industrial positions in response to the exploding e-commerce business. Denver has also benefited from the post-recession geographic distribution of capital, as U.S. investors continue to exhibit confidence in the transportation and logistics hub of the Rocky Mountain region.

Logistics Driver:

Metro Denver has made significant improvements to the region's transportation infrastructure in the past decade.

Vacancy:

While vacancies increased slightly to 4.6% in 2016, vacant space remains significantly lower than the 9% rate posted in 2011.

Absorption:

Despite higher vacancies as a result of new construction, the pace of overall net absorption remains strong. 2016 marked the fifth consecutive year of occupancy gains in the Denver market and 2.5 million square feet in absorption.

Development:

In 2016, industrial construction activity reached its highest level in 15 years with more than 3.6 million square feet under construction, of which a large percentage is pre-leased.

Asking Rents:

Speculative development has increased dramatically over the past year as asking rental rates have reached levels where new construction is feasible despite historically high construction costs.

Key Statistics by Property Size

10,000-24,999 SF

25,000-49,999 SF

50,000-74,999 SF

75,000-99,999 SF

3.2%

3.5%

$7.83

$8.00

100,000-249,999 SF

3.0%

3.8%

$6.25

$6.50

250,000-499,999 SF

8.9%

10.6%

$6.00

$6.00

500,000 SF +

7.1%

6.0%

$6.00

$6.25

Greater phoenix

Ranked #9 in the U.S. for new supply in 2016

“The Greater Phoenix industrial market has been in expansion mode for the past few years, with large tenants leasing spaces and developers bringing speculative and build-to-suit projects through the pipeline. Even with new projects coming online, vacancies are tightening and rents are on the rise, reflecting the overall strengthening in the industrial market. Local economic expansion should accelerate in the years ahead as housing starts and permits pick up to meet demand driven by population growth and in-migration from other markets.”—Bob Mulhern, Senior Managing Director | Phoenix

Key Strengths:

The Greater Phoenix industrial market continues to post exceptional growth because of its proximity to a growing population in the Southwest, a strong workforce base, a modernized highway system and more attractive rental rates compared to markets in Southern California.

Logistics Driver:

Phoenix recently expanded its local interstate system, and its location along Interstate 10 gives the market a significant logistical advantage in reaching the Southwest populace.

Vacancy:

Leasing activity from a diverse tenant pool accelerated in 2016, driving down the vacancy rate. At 10.2% in 2016, the vacancy rate reached its lowest point since late 2007.

Absorption:

Net absorption has been consistently strong, averaging nearly 7.5 million square feet annually since 2014. The second half of 2016 was on par with this trend, with 4 million square feet absorbed.

Development:

While the pace of post-recession development peaked in 2014, a robust 5 million square feet were completed in 2016 with an additional 6.5 million square feet slated to be delivered in 2017.

Asking Rents:

Asking rents have trended higher over the past five years, with annual growth averaging more than 3.5% over that time period. In 2016, asking rents rose more than 4% in the Greater Phoenix industrial market.

10,000-24,999 SF

25,000-49,999 SF

50,000-74,999 SF

75,000-99,999 SF

100,000-249,999 SF

250,000-499,999 SF

14.5%

13.7%

$4.42

$4.73

500,000 SF +

13.5%

13.2%

$4.30

$4.36

Greenville-Spartanburg-Anderson

Ranked #6 in the U.S. for overall net absorption as a percent of inventory in 2016 (3.9%)

“The Greenville-Spartanburg-Anderson market is an industrial powerhouse. The region sits halfway between Atlanta and Charlotte on Interstate 85, has dual rail connections and is connected to the Port of Charleston by Interstate 26. The market’s competitive business climate is sustained by the nation’s lowest unionization rate (2.1%), access to economical and dependable energy, a deep pool of advanced manufacturing workers and a proven workforce development program in the South Carolina Technical College System. The region is home to 500 foreign-owned companies from 34 different countries—making it a validated location for foreign direct investment.”—David Feild, Market President | Greenville

Key Strengths:

Plentiful land for development, along with close proximity to the ports of Charleston and Savannah, has some dubbing the Greenville-Spartanburg-Anderson market as the future “Inland Empire of the East Coast.” Three growing industrial fields dominate the area: automotive (anchored by BMW and Michelin), advanced materials manufacturing (supporting the specialty textiles industry serving Boeing and the automotive sector) and the logistics and distribution facilities that serve the southeastern United States.

Logistics Driver:

In addition to the seaports, the market’s Inland Port Greer (SCSPA) and access to Interstates 85 and 26 is attracting a diverse group of tenants to the area.

Vacancy:

Absorption:

Lower vacancies were a direct result of record amounts of overall net absorption in 2016. More than 7.7 million square feet were absorbed—nearly double the previous record in 2007.

Development:

Robust demand from the distribution, automobile and manufacturing industries significantly increased development in 2016 with a record 8.5 million square feet of new construction. While only 2.7 million square feet are currently under construction, another 4.8 million square feet are planned. A rapidly growing automobile manufacturing industry and projected import increases at Charleston are expected to keep the pace of development robust in 2017.

Asking Rents:

Despite dwindling vacancies, asking rental rates were stable in 2016 at $3.28 per square foot per year, making the market one of the most economical in the entire country.

10,000-24,999 SF

25,000-49,999 SF

50,000-74,999 SF

75,000-99,999 SF

100,000-249,999 SF

11.1%

9.4%

$3.21

$3.17

250,000-499,999 SF

12.4%

13.8%

$3.32

$3.32

500,000 SF +

1.3%

2.4%

$4.03

$3.35

Indianapolis

Ranked #6 in the U.S. for overall net absorption in 2016 (up from #25 in 2015)

“Known as the ‘Crossroads of America,’ the Indianapolis market has the distinct geographic and logistical advantage of being the intersection point of eight interstate systems. As a result, 75% of U.S. and Canadian populations can be reached in a day’s drive. With waterway access to the north Chicago area and to the south Louisville area, it may surprise some that Indiana ranks sixth in the U.S. for waterborne shipping and boasts the only statewide port system with direct waterway access to two U.S. coasts. Indiana also continues to earn top marks for its appealing tax structure and business-friendly regulatory environment.”—Brian Zurawski, Executive Vice President & Co-Market Leader | Indianapolis

Key Strengths:

Developers continue to find competitive land opportunities and favorable pricing in the Indianapolis industrial market, leading to more than 20 million square feet of industrial development since 2013. The Indianapolis International Airport is also the sixth-largest U.S. cargo system. The state’s business-friendly climate incentivizes development with tax abatements while the Indianapolis area lures operations with a deep labor pool.

Logistics Driver:

Indianapolis’ central location in the Midwest makes it a logical e-commerce hub. It is also home to the second-largest FedEx hubin the world, which is a key component to the market’s success.

Vacancy:

Robust demand, particularly for large, modern bulk distribution centers, lowered the overall vacancy rate from 8% in 2015 to 5.4% in 2016.

Absorption:

After averaging 3.95 million square feet annually since 2008, overall net absorption reached 9.9 million square feet in 2016—making Indianapolis one of the top 10 markets in the country in terms of overall net absorption.

Development:

The variety of speculative supply being developed in Indianapolis can appeal to a wide range of users. Because of this, nearly 4 million square feet of product completed construction in 2016 and another 6.4 million square feet is underway at the beginning of 2017.

Asking Rents:

With low asking rental rates (below $4 per square foot NNN market-wide), users are increasingly looking to Indianapolis as a well-priced option for distribution operations in the Midwest.

Key Statistics by Property Size

10,000-24,999 SF

25,000-49,999 SF

50,000-74,999 SF

75,000-99,999 SF

7.6%

4.9%

$4.48

$5.11

100,000-249,999 SF

6.7%

5.3%

$3.97

$4.17

250,000-499,999 SF

10.1%

4.9%

$3.34

$3.55

500,000 SF +

9.0%

7.8%

$3.17

$3.20

Kansas City

Ranked #7 in the U.S. for new supply in 2016

“The Kansas City market continues to become an emerging power as a result of its location, superior infrastructure and business-friendly foreign trade zone program. Kansas City is home to the largest rail center in the United States by tonnage and is located at the middle of the East-to-West corridor and the route from Mexico to Canada. Four interstate systems converge upon Kansas City, resulting in more freeway-lane miles per capita than any other U.S. city, while allowing goods to be delivered to 85% of the nation’s population within two days.”—D. Edward Elder, President | Kansas City

Key Strengths:

Kansas City’s central location and multiple intermodal operations allow the growing e-commerce and distribution sector to quickly deliver goods. Amazon invested heavily in the Kansas City market in 2016 with the announcement of three large deals, just two years after initially entering the market.

Logistics Driver:

The Logistics Park Kansas City (LPKC), located adjacent to a BNSF Intermodal Facility, continues to grow and attract tenants at an unprecedented pace for the market. LPKC delivered more than 3.1 million square feet of industrial product in 2016, with more than 2.7 million square feet of that product already accounted for by tenants.

Vacancy:

The overall vacancy rate in Kansas City climbed to 6.9% in 2016. The vacancy rate continues to rise as a result of the significant amount of speculative development delivered in 2016. Completed project totals continue to outpace absorption figures in the near term, but will likely begin to stabilize in the upcoming quarters.

Absorption:

At 6.1 million square feet, net absorption in 2016 crushed the previous annual record of 4.4 million square feet in 2007.

Development:

At year-end 2016, construction completions reached an all-time peak of 7.9 million square feet. The future pipeline remains full for development opportunities across all metro submarkets, so expect construction activity to remain elevated throughout 2017.

Asking Rents:

Asking rates have risen slightly relative to previous quarters and years, but have remained relatively steady as a result of strong development and a temporarily higher amount of vacant space.

10,000-24,999 SF

25,000-49,999 SF

50,000-74,999 SF

75,000-99,999 SF

100,000-249,999 SF

250,000-499,999 SF

5.6%

10.2%

$3.96

$4.10

500,000 SF +

6.0%

7.0%

$3.88

$4.05

memphis

At $2.87 PSF/YR in 2016, Memphis has the lowest asking rental rate for a U.S. market over 100 million square feet.

“Memphis is a place where occupiers, developers and investors have the land, the labor and the pro-business environment to be successful. The competitive nature of Tennessee and the neighboring states of Mississippi and Arkansas provide an advantage for occupiers looking to leverage incentives for their distribution/manufacturing locations. Having FedEx and a 1-million-square-foot UPS hub in your backyard doesn’t hurt either. The Class A vacancy rate is the lowest it has ever been and there is more speculative development under construction, proposed or planned than at any point in the past 15 years.”—Andy Cates, CEO & President of Brokerage Services | Memphis

Key Strengths:

Memphis is an international distribution hub and global supply chain center with a transportation infrastructure that is second to none. Memphis is served by five Class I railroads, 490 trucking terminals, the nation’s fourth-largest inland water port, 11 highways and the world’s largest cargo airport.

Logistics Driver:

The International Port of Memphis is the second-largest inland port on the shallow draft portion of the Mississippi River and the fifth-largest inland port in the United States. The port is key to feeding product to Memphis’ large rail network. In fact, Memphis is the third-largest rail center in the U.S. behind Chicago and St. Louis. It’s also home to nine fully operational rail yards with a total container capacity of more than 2 million annual lifts.

Vacancy:

Strong demand lowered the overall vacancy rate in Memphis to 6.7% in 2016—the lowest vacancy rate in that market for more than a decade.

Absorption:

With more than 13.5 million square feet of net absorption in the past six quarters and only 4.3 million square feet of construction deliveries, the Memphis metropolitan statistical area industrial market is approaching all-time-low vacancy and available property levels.

Development:

With vacant space dwindling, new development has skyrocketed. The 5 million square feet under construction marks the highest level on record for the market.

Asking Rents:

Rental rates continue to ascend, finishing 2016 at $2.87 per square foot per year NNN. Despite this increase, asking rental rates in Memphis remain the most economical in the U.S. for a market over 100 million square feet.

Key Strengths:

Home to international brands like Jack Daniel's, FedEx and Gibson Guitar, the Nashville market is a magnet for the big names in the logistics and advanced manufacturing industries. Nashville is a strong secondary market, with a lower cost of doing business than gateway cities like San Francisco, Chicago, New York and Los Angeles. Nearly half of the U.S. population lives within 650 miles of Nashville, which translates to one- and two-day truck delivery times to more than 75% of all U.S. markets.

Logistics Driver:

While Nashville’s access to Interstate 40, Interstate 65 and Interstate 24 is a major factor in driving demand, the market’s air cargo capabilities at Nashville International Airportput the market at an advantage in the ongoing competition for one-day and same-day delivery.

Vacancy:

Robust demand continues to lower vacancies in Nashville, finishing 2016 at 4.2%—the market’s lowest vacancy rate in more than a decade.

Absorption:

The 10-year average for industrial absorption in Nashville is 2.7 million square feet. For the past four years, Nashville’s industrial market has surpassed this average despite the delivery of 6.6 million square feet of new product during that time frame.

Development:

Record-breaking rental rates and high occupancy levels continue to drive construction in Nashville. At year-end 2016, 2.5 million square feet had been completed with an additional 5.3 million square feet under construction.

Asking Rents:

The Nashville industrial market is undergoing the tightest conditions in its history. Demand for industrial space has created a market that is favorable to landlords, allowing owners to push rents to record-high rates while maintaining healthy occupancy levels.

Key Statistics by Property Size

10,000-24,999 SF

25,000-49,999 SF

50,000-74,999 SF

75,000-99,999 SF

4.2%

1.9%

$5.91

$6.04

100,000-249,999 SF

4.6%

3.9%

$4.75

$5.01

250,000-499,999 SF

8.0%

6.0%

$4.55

$4.89

500,000 SF +

8.8%

6.9%

$3.77

$3.76

Shenandoah valley

6.6% overall vacancy rate in 2016 (compared to 12.1% in 2009)

“The Shenandoah Valley market is a cost-effective alternative to markets further north in the Lehigh Valley and central Pennsylvania. The Port of Baltimore and the Port of Virginia provide rail access through CSX and Norfolk Southern, respectively. Combined with access to labor markets in Virginia, Maryland and West Virginia, these factors make the area particularly attractive to employers. This was most recently evidenced by Proctor & Gamble's commitment to a multi-million-square-foot manufacturing and distribution facility in Martinsburg, WV—which will come online in 2018.”—John Lesinski, Executive Vice President | Northern Virginia

Key Strengths:

The Shenandoah Valley region offers a plethora of advantages including land available for development and proximity to the metro Washington, D.C., Baltimore and Ohio Valley population bases. The Shenandoah Valley continues to see robust demand, particularly in Frederick, VA; Winchester, VA; and Berkeley, WV.

Logistics Driver:

The Virginia Inland Port is approximately 60 miles west of Washington, D.C. and occupies 161 acres of land. The terminal brings the Port of Virginia 220 miles closer to inland markets and enhances service to the Washington, D.C. and Baltimore metro region by providing rail service to terminals in Hampton Roads. The Virginia Inland Port also consolidates and containerizes local cargo for export.

Vacancy:

Overall vacancy rates in the Shenandoah Valley finished 2016 at 6.6%—nearly cut in half since the high of 12.1% in 2009.

Absorption:

Overall net absorption in the Shenandoah Valley was positive for the seventh consecutive year, finishing 2016 at 1.6 million square feet. With robust demand and available land, the rate of positive absorption should continue to accelerate.

Development:

Warehouse demand was strong in the second half of 2016 with Home Depot, Millcroft Farms and Fiat-Chrysler leasing or moving into space. Abundant available land in the northern portions of the market will likely lead to new bulk development as vendors for Procter & Gamble and Chrysler seek more space in the region.

Asking Rents:

With lower levels of vacant space, asking rental rates increased 13.6% in 2016 over the previous year to reach $4.37 per square foot per year NNN. With the area gaining popularity and the pace of development not yet quenching demand, rental rates will likely continue to ascend in the coming year.

10,000-24,999 SF

25,000-49,999 SF

50,000-74,999 SF

75,000-99,999 SF

100,000-249,999 SF

12.2%

8.6%

$3.40

$3.53

250,000-499,999 SF

8.2%

9.7%

$3.82

$3.80

500,000 SF +

3.4%

2.5%

$4.17

$4.24

tampa bay

Ranked #10 in the U.S. for overall net absorption in 2016 (up from #28 in 2015)

“Tampa Bay is the demographic center of the state of Florida. The region known as the Interstate 4 corridor is widely diverse, which has positive implications for distributors and manufacturers. They say that if you can sell it or source it in Tampa Bay, you can send it by plane, train or truck anywhere on the planet. As a result, Tampa Bay is increasingly becoming the point of departure or arrival for goods and materials.”—Ryan Kratz, President | Tampa Bay

Key Strengths:

An exploding population continues to fuel the Tampa Bay market. E-commerce is one of the key drivers, as Amazon and Walmart have both opened multi-million-square-foot distribution centers.

Logistics Driver:

In 2014, CSX opened the 318-acre Central Florida Intermodal Logistics Center (CFILC) in Winter Haven, FL. The CFILC terminal can process 300,000 containers a year and the surrounding 930 acres can potentially be developed into 7.9 million square feet of distribution and light industrial facilities.

Vacancy:

Overall vacancy rates declined significantly in 2016 to 6.3%—1 percentage point lower than at year-end 2015. Vacancies decreased despite more than 4.4 million square feet of new construction in 2016.

Absorption:

The strong demand in the Tampa Bay market is showcased in net absorption, which finished Q3 2016 at 4.6 million square feet YTD, the 10th-highest level in the country. At the same point in 2015, Tampa Bay ranked 28th for overall net absorption.

Development:

With a large amount of land available for development, the Interstate 4 corridor is expected to see the largest increase in activity in the Tampa Bay market in 2017.

Asking Rents:

Asking rates were stable in 2016, finishing the year at $5.06 per square foot per year NNN. With vacancies continuing to decline and a large amount of Class A construction completing in 2017, look for asking rental rate growth to accelerate in the coming year.